Dividends4Life: HSBC: Buy European Dividend Stocks As Valuations And Bond Yields Decrease

Yield is set to outperform quality and growth according to HSBC’s European equity research team. In a note issued to equity research clients on Wednesday and reviewed by ValueWalk, HSBC suggests that European high yield equities will benefit from falling bond yields over the next few months. According to HSBC’s fixed income research team, Bund yields will fall to 0.2% next year, which will increase the demand for high yield equities among investors. Other styles may also outperform as bond yields fall, but HSBC prefers yield as valuation risks are lower. The price to book relative of high yield sectors is at an 18% discount to its 20- year average. This is in contrast to growth and quality for which valuations are more stretched than they have been at any point over the past two decades.

Based on historic trends, it looks as if HSBC’s preference for yield over other strategies has some weight behind it. Indeed, on the last two occasions bond yields fell significantly, (between June and September 2011 when bond yields fell from above 3% to below 2%, and between December 2013 and March 2015 when bond yields fell from 1.9% to 0.2%) high yield equities outperformed. Valuations also support a preference for high yield equities. The price to book relative and PE relatives for high yield are below their long-term averages, and the universe of yield stocks covers a broad range of sectors.

Source: Value Walk

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